Badger1754 wrote: ↑Wed Jan 26, 2022 12:23 pm
Just wanted to flag this announcement:
https://blog.wealthfront.com/wealthfront-has-agreed-to-be-acquired-by-ubs/
About four years ago, I
posted a thread predicting this would happen. There is no way that independent roboadvisors can ever hit the scale required to give their VCs an adequate return on capital, given the overwhelming advantages held by larger names like Vanguard, Fidelity, Merrill, etc. It looks like Wealthfront threw in the towel. Wealthfront most recently hit $25B AUM, which while an improvement over the $10B they had in 2018, was nowhere close to $245B they needed to get a 30x return on investment at their then-fee levels. Their VCs got a 7x return on investment, which is perfectly respectable (and does put WF in the unicorn category).
As I wrote then:
I am suggesting the chances of Wealthfront remaining a viable, stand-alone roboadvisor is very slim as it assumes either massive increases in fees or in AUM, neither of which is likely. I'd have to wonder who would buy them. All the large brokerage houses are developing their own roboadvisors and I would find it very hard to believe Wealthfront's distinctive IP, for example, their automated risk parity algorithm, is worth however much the VCs would accept as an exit value.
And now we know.. UBS.. Swiss bank dinosaur without its own robocapabilities, decides to buy a robocapability under the watchful eye of their new CEO.
Spot on! Roboadvisors turned out to be a not-so-great business.
The product doesn’t work very well for people past a certain age, or past a certain amount of money. There’s too many nuances to handle (eg,
I might buy a house in the next 10 years, how should I allocate my money?). So it forced wealthfront to focus on younger investors. But even if a company acquires a 100% of the AUM for people under the age of 30, that’s a paltry amount of the total assets - older folks have more money saved up!
They had a niche amongst young techies who would prefer not to think about their money, but also want it to grow. But it's not a big enough niche. And as those folks got older, they graduated to using RIAs. I saw this with many people I know.
There’s no meaningful product differentiation between the various robo advisors. And all of them had raised venture rounds with large ad budgets! So their customer acquisition costs were super high.
And like you noted, since there’s no product differentiation, incumbents had a big distribution advantage. So the writing was on the wall as soon as Schwab and Vanguard launched their own robo advisors.
Mind you, calling a >1bn exit a
not so great business is rich on my part, but fintech multiples are really high right now! Not a huge exit from that POV.